Ever wondered why the names of companies end with "Pvt Ltd" or "Limited" - for eg: IBM India Pvt Ltd or Reliance Industries Limited?
When someone or some group of people start a company, they pool in some money. The new company does business with this money that is pooled in by the so called investors or promoters. Then the company grows by taking new loans from the bank, entering into service contracts with other companies or people etc.
Now due to unforeseen circumstances if the company makes colossal losses or goes bankrupt and needs to be shutdown, the LAW guarantees the PERSONAL WEALTH of the investors (stock holders) will not be attacked to compensate the losses (debt) accumulated by the company. The liability of the investors is LIMITED - all they have to part with is just the money they had pooled in when the company was started. Thus to make the public aware that a liability of a company is limited, the words Pvt Ltd (Private Limited) in case of the Private Company or Limited in of a Public Company is suffixed to the name. This is mandatory by LAW.
Eg, Mukesh Ambani starts a new company "Ambani Technology Private Limited" and invests 10 cores in the company borrows another 20 cores from the bank and the company shuts down after a couple of months - the total loss of 20+ crores to the bank is not compensated by attacking Ambani's personal wealth. The Bank can only recover 10 crores (from Ambani's initial investment) (some of it might be spent though) and the money obtained from selling any assets of the company like the buildings, patents, etc...
In short, the investors of a company are only liable to investment in the company and not their personal wealth - hence the suffix Limited to the name of a company.
10 comments:
That's a good learning for the reader Manya, but you got a typo in the blog buddy 'goes bankrupt and need needs to be shutdown'
Also it would be great if you can throw some light on gmbh of Germany and LLC of USA!!!
That would make it good learning to better learning :)
very interesting man! Enlightening :) Never really bothered to find out.
Neatly explained!
- Dattatreya
good one.. any wiki link to this??
http://en.wikipedia.org/wiki/Limited_company
http://en.wikipedia.org/wiki/Public_limited_company
Wiki usually has US and English law information.
Most of the Indian Law is derived from English Law, but in last few decades, it has evolved distinctively.
was quite informative :)
Really a very good learning!
My current company itself has got this Pvt. Ltd. suffix, but I never bothered to know more about it. It's all clear now.
good work bubble... got to know some meaningful stuff... keep going...
good one (Bee)business law blogger...
Hmm That is a really good one Manoj. Will be followin ur blog for more good ones.
Nothin related to techies but just for a change, ' the word Jeep for the vehicle has come from the word GP. earlier this kind of vehicle was used for Generic Purpose hence was called vehicle for GP. and which evolved into the word Jeep.
p.s - Dude great blog but Gladiator???????? still tickles my funny bone cant stop laughing.. hehe ..
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